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Volume 2, Issue 4, 2002   Federal Reserve Bank of Dallas

Earned Income Tax Credit
Bank One Program Helps Low-Income Taxpayers

Twenty-five percent of single and married people eligible for the Earned Income Tax Credit did not claim it, leaving $830 million in unclaimed refunds for the 2000 tax year in Texas, according to the Stakeholder Partnership Education and Communication (SPEC) office of the Internal Revenue Service.

The Earned Income Tax Credit (EITC) is a refundable tax credit that reduces the tax burden of low- to moderate-income workers. "It is called the earned income credit because to qualify, you must work and have earned income," says Wilda Appiagyei, senior tax specialist with the SPEC office.

For tax years beginning in 2002, the tax credit will benefit people who have earned income of less than $34,178. The actual credit is based on the family's total income and the number of qualifying children.

Many Families Don't Know

According to the Urban Institute, in 1999, 65.7 percent of families at 50 to 100 percent of the federal poverty level knew about the tax credit. That statistic dropped to less than 50 percent for very poor families—those families whose income was less than 50 percent of the federal poverty level.

Further research indicates that low-income Hispanic parents are much less likely to know about or receive the EITC than low-income non-Hispanic parents of any ethnic group. Fewer than one in three low-income Hispanic parents know about the program, and fewer than one in five have ever received the tax credit or refund.

Some Pay Too Much

A second problem, according to Appiagyei, is that filling out tax forms can be too complicated for many taxpayers, especially those who do not speak or read English well enough to understand the forms. The Center on Budget and Policy Priorities estimates that 60 percent of EITC recipients pay to have their tax returns prepared.

In addition to the tax preparation fee, taxpayers may pay an additional fee plus interest for a "quick refund," or "refund anticipation loan," further reducing the tax refund amount. Many users of commercial tax preparation services believe they will receive their refunds more quickly and do not realize the quick refund is actually a high-interest loan.

A recent Brookings Institution study estimates that $1.75 billion in EITC refunds was used for tax preparation, electronic filing and high-cost refund anticipation loans in 1999. They further estimate that nearly half of the $30 billion in EITC claimed was refunded through high-priced loans. [1]

Bank One Steps Up

In 2001, Bank One offices in Dallas formed a partnership with the IRS to help spread the word about the EITC and to assist low-income people in preparing their tax returns. "Bank One wanted to give EITC recipients another choice," says Sophie Guerra, vice president and relationship manager at Bank One.

During the 2001 tax season, eight Dallas-area Bank One banking centers were open on Saturdays, with 25 employee volunteers assisting customers in completing their tax returns. Bank One printed and distributed more than 10,000 flyers to promote the free tax assistance.

In addition to having their tax returns filed electronically by the Bank One employee volunteers, taxpayers had the option of opening a bank account and having their tax refund direct deposited into their new account.

"Taxpayers often receive their refunds sooner if they have them direct deposited into a checking or savings account. This is a better option than paying interest and additional fees for a refund anticipation loan," says Guerra. "The Bank's EITC outreach efforts were also a way for the bank to reach individuals who did not have bank accounts and create a banking relationship with them."

Appiagyei is pleased with the Bank One partnership. "For us to reach the individuals and families who are eligible for the EITC but not taking advantage of it, we need more partners like Bank One," she says.

Extending Assistance and More

Guerra is already planning for the 2002 tax season. To continue EITC outreach efforts, Bank One will have more locations and extended hours for the free tax preparation service and will enlist the support of other private sector organizations.

To promote financial literacy, Guerra is also planning to offer a more formalized financial education program to customers who are interested in improving their asset-building capabilities. Bank One banking center managers are being trained to teach the Federal Deposit Insurance Corp.'s Money Smart curriculum.

Guerra believes that customers will be interested in knowing what options they have for saving or investing their tax refund and will take advantage of the Money Smart classes. To learn more about Bank One's EITC outreach program, contact Sophie Guerra at 214-651-8192.

The IRS also offers free tax preparation services through its Volunteer Income Tax Assistance program (VITA). VITA sites are open all over the country from late January through April 15. To find out more about the VITA program, visit www.irs.gov Off-site page.

EITC Eligibility

How does the IRS determine who is eligible to receive the tax credit? The following table illustrates the income levels used to determine eligibility for the EITC for the 2002 tax year and the tax credit amounts.

  Number of qualifying children
  0* 1 2 or more
Maximum amount of income $12,060 $30,201 $34,178
Maximum amount of tax credit $376 $2,506 $4,140
*Taxpayers without children must be between the ages of 25 and 64 at the end of 2002.

Claiming the EITC

To receive the tax credit, individuals and families must complete Form 1040 or 1040A and must fill out and attach Schedule EIC (Earned Income Credit). Workers with children cannot get the EITC if they file Form 1040EZ or fail to attach Schedule EIC. Married workers living together must file a joint return. Workers who are not raising children can file any tax form, including the 1040EZ; they do not need to file Schedule EIC.

In addition, the correct name and a valid Social Security number must be provided for every person listed on the tax return and Schedule EIC. Refunds will be delayed if the information is missing or incorrect. Workers do not have to calculate their own tax credit amount; the IRS will do that for them.

Workers can file for the EITC for the last three years. If workers discover they were eligible for the EITC in 2001, 2000 and 1999, they can claim it for those three years by completing a separate tax return for each year and attaching a Schedule EIC to each return.


  1. Find the Brookings Institution study, "The Price of Paying Taxes: How Tax Preparation and Refund Loan Fees Erode the Benefits of the EITC," at www.knowledgeplex.org/kp/report/report/relfiles/bi_0606_berubekimeitc.pdf PDF document.

e-Perspectives, Volume 2, Issue 4, 2002

Federal Reserve Bank of Dallas Off-site page
Community Development Office Send an e-mail
P.O. Box 655906, Dallas, Texas 75265-5906
Gloria Vasquez Brown Send an e-mail
Vice President
    Nancy C. Vickrey
Assistant Vice President and
Community Development Officer
Jackie Hoyer Send an e-mail
Houston Branch
Senior Community Development Advisor
    Diana Mendoza
Community Development Specialist
Karen Riley
Community Development Specialist
The views expressed are the authors' and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System. Articles may be reprinted on the condition that the source is credited and a copy is provided to the Community Development Office.

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